Retail Sales Disappoint

Good day… And a Terrific Tuesday to you! Quite the uneventful flight to Las Vegas yesterday, which is good. As we were getting ready to land, the scary landing we had a couple of years ago went through my head and shivers went down my spine. That was the flight that the wind blew sideways just as we were landing and the wing came within a few feet of touching ground. So… No worries yesterday… Good!

That was quite a rally in the currencies led by the euro (EUR) yesterday, which was very nice given the news I had to bring to you yesterday. Unfortunately, the gains couldn’t hold in the overnight markets, and the euro is back below 1.55 after spending much of the day well above that figure.

Front and center this morning we’ve seen retail sales for April print at a negative 0.2%, which falls in line with the indication the Butler Household Index gave us… But let me tell you this now, so you can listen to me later. The media is going to tell you that if it weren’t for auto sales, retail sales would have been positive. So, just like everything else, if the sector doesn’t make us feel good, we just remove it! There! Now doesn’t that feel better?

Fed Chairman Big Ben Bernanke is speaking this morning (this is one good thing about writing while in the West!) and he is very cautiously talking about the rebound in the securitization markets as “moribund”, and the overall recovery process as incomplete.

I don’t see the Fed lowering rates in June like I previously thought they would. I think they will sit back a couple of months and look at what they did with their previous seven rate cuts. I fully expect them to come back later this year and cut rates again, because I just don’t think we as a country have put the “risk events” in our rear view mirror.

To follow that up… Bank of America announced this morning that they had widened their forecast of home-equity loan losses beyond the projections offered last month. Doesn’t this spell “more consumers are falling behind on debts”?

As you all know, I have not been a fan of the Fed rate cuts. They have been inflationary and that just drives me crazy, and causes me to yell at the walls! The Fed has turned its back on inflation, in an effort to promote growth… Providing price stability should be their main concern… But NOOOOOOOOO!

Inflation pressures in Europe are being felt in the Eurozone, Sweden, Norway, U.K. and Denmark. Besides the U.K., these countries have Central Banks that ARE fighting inflation first… And providing price stability. This is one of the reasons I truly believe these to be currencies to look to… Strong inflation fighting Central Banks and a positive balance of payments. Great reasons to look at these currencies!

Another Central Bank that has done a good job of fighting inflation pressures is the Brazilian Central Bank. And with food prices rising like they are, you can bet Brazil is facing some strong inflation pressures! The Brazilian Central Bank raised rates two weeks ago, and I fully expect them to raise them again at their next meeting. This should be quite a feather in the cap of the Brazilian real (BRL)…

The stupid carry trade was put back on the books again yesterday, as those fearing “risk” on Friday put those fears aside, and pushed up stocks again. Japanese yen (JPY) held ground but the move obviously stopped the rise in yen in its tracks.

The Aussie dollar (AUD) was the beneficiary of this move from risk, as the high yielders were bought again. Aussie is now the poster child for this trade on the buy side, as investors are obviously steering clear of Iceland (ISK) and South Africa (ZAR)… Instead purchasing Aussie and Brazil in their place.

I received an email the other day chastising me for not telling Iceland holders about the problems that have come into this market. I have to say that this hit me from left field. I have talked and talked about Iceland’s problems, here and in the monthly newsletter for customers, Review & Focus. But… Just because I write about it, I can’t make someone read it!

Speaking of Iceland… This market has turned so sour that it just doesn’t make any sense to be there any longer. Please, when your CD comes due, do not roll it, unless you are willing to take on all that risk, with no interest premium to help offset the risk! Interest rates that are payable to holders of the currency have gone negative! The dealers have their hands tied, as there is no liquidity in the currency.

I’m running a bit late this morning… So, I’ll head to the Big Finish…

Currencies today 5/13/08: A$ .9390, kiwi .7655, C$.9950, euro 1.5455, sterling 1.9435, Swiss .95, ISK 79, rand 7.5850, krone 5.0720, SEK 6, forint 161.28, zloty 2.1875, koruna 16.13, yen 104.40, baht 32.38, sing 1.3720, HKD 7.7975, INR 42.20, China 6.9880, pesos 10.47, BRL 1.6620, dollar index 73.30, Oil $124.20, Silver $16.67, and Gold… $864.10

That’s it for today… I know most of you are wondering why this is so late this morning, but remember, I’m two hours behind my normal time zone. It will be this way all week… I have a talk this morning and I haven’t looked at it yet! YIKES! Talk about unprepared! But then, I do this all the time; I could do it in my sleep! Those are some very sad pictures coming from China where the earthquake there has accounted for deaths of over 12,000. I got to meet some customers last night at dinner… Very nice people… Well… I hear my presentation calling me… I hope you have a Terrific Tuesday!

Chuck Butler
May 13, 2008

The Daily Reckoning